26/04/16
Electrification, US shape Swiss chemical, pharma demand
Electrification, US shape Swiss chemical, pharma demand
London, 16 April (Argus) — Electrification is likely to boost electricity demand
in Switzerland's chemical and pharmaceutical industry, but high power prices and
US trade policy could accelerate offshoring, according to experts from chemical
and pharmaceutical industry association Scienceindustries. Power demand from the
chemical and pharmaceutical sector accounts for around 10pc of Switzerland's
total industrial power demand and around 5pc of total Swiss demand,
Sciencesindustries environment and sustainability head Anna Bozzi told Argus .
Power demand is comparable between the two sub-sectors. Demand from the two
sectors rose by almost 20pc over 2016-22, before falling by around 10pc in
2022-24, according to the latest data from Swiss energy office BFE. Rising
electrification and increasing energy efficiency have "shaped" the sectors'
demand over the past 10 years, Bozzi said. Power prices big issue for chemicals
But there is an "acute" danger that high power prices will cause chemicals
production to relocate abroad, in particular to the US and China, the
association's deputy director and energy head, Michael Matthes, said. Power
prices play a less decisive role in overall production costs for
pharmaceuticals. Power prices in Switzerland have fallen significantly since the
energy crisis of 2022, but industry is still feeling its impact, most notably in
the increase in the country's power reserve tariff, Matthes said. This was
introduced in 2024 to finance Switzerland's winter energy reserve and protect
against power shortages. It equates to an additional 0.01 Swizz francs/kWh
(1.3¢/kWh) in grid costs, or SFr3mn/yr (€3.25mn/yr) for a company with 300
GWh/yr of power consumption, Bozzi said. A successful power agreement with the
EU could stabilise prices by improving market integration, increasing grid
efficiency and opening up access to a broader range of grid reserve capacities,
she said. The agreement was signed and submitted to parliament last month, but
will likely go to a public referendum if passed. But geopolitical tensions in
the Middle East are adding uncertainty to global energy markets, which
"reinforces" existing challenges for the chemical and pharmaceutical industry,
including "persistently elevated energy costs" and uncertainty surrounding
long-term investment and location choices, Bozzi and Matthes said. Swiss spot
prices averaged €95.95/MWh over 2023-25, but jumped to around €120/MWh following
the start of the Iran war — the highest for the period since 2022. Prices for
2027 have risen by around 11.5pc since 27 February — the last session before the
outbreak of the conflict — but remain around €12/MWh above 2028 prices. And 2028
prices are around €5/MWh above recent trades for 2029, according to the latest
assessment. This backwardation in the forward years reflects expectations of
growing renewable energy capacity and increased LNG supply availability in the
coming years. The median final power price for businesses decreased over
2024-26, according to federal power regulator Elcom, and transmission system
operator Swissgrid tariffs will fall on the year in 2027 , owing partially to a
reduction in the power reserve tariff. But the tariff for solidarity-based costs
— covering grid enhancements, among other things — will rise next year, and
Swissgrid expects the power reserve tariff to increase in future years because
of the country's new reserve power plants set to be commissioned over 2027-30.
Peak shaving not on the cards, but storage possible Large-scale chemicals
production cannot be shifted to nighttime or weekends, Matthes said. Sites tend
to either run at full capacity or not at all, some for 48 weeks a year, and only
smaller companies have processes where shifting production in time is possible.
Halting production would destroy the micro-organisms and bioactive substances
involved in biotechnological process, and any subsequent restart could take
weeks and incur enormous costs, Bozzi explained. Nevertheless, storage solutions
such as power-to-chemicals — synthetic methane or methanol, for example — could
help increase system flexibility in the longer term by allowing electricity
storage in chemical form, she said. Empty threats? Power prices are a structural
"push factor" and play a key role in long-term location decisions. But threats
of punitive export tariffs from the US add an "additional source of
uncertainty", Matthes said. The US was the largest single destination of
Scienceindustries member company exports last year, accounting for SFr36.7bn
(€39.8bn) of exports. US tariff threats will not lead to an overnight shutdown
of Swiss production, but will harm the investment climate and could accelerate
relocation trends that would have happened anyway, Matthes said. Chemicals
sector production, indexed to 2021, was largely flat over 2004-24, the latest
data from federal statistical office BfS show. Pharmaceuticals sector production
rose sharply over this time, peaking in the first quarter of 2025 ( see chart ).
Some companies have announced long-term investment plans and are committed to
remaining in Switzerland. The US labour market also faces constraints and
finding the skilled personnel for production processes could be "challenging",
Matthes said. Technological developments trump Trump Technological developments
point to a "slight upward trend" in future industrial power demand, Bozzi and
Matthes said. The "next steps" for the chemical and pharmaceutical industry
involve the electrification of processes, Bozzi said. Switzerland's focus on new
and highly energy-intensive carbon capture technologies will add further strain
to power demand. In a worst-case scenario, production could move away from
Switzerland, but this "disruptive" factor is something that cannot be assessed
yet, Matthes said. Technological developments will produce a "larger, more
dominant effect" that would lead to a slight increase in power demand, he said.
By Bea Leverett Swiss spot vs forward curve, 2023-28 €/MWh Swiss chemical and
pharmaceutical production and electricity consumption 2013-24, indexed to 2013
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